EconStor >
Georg-August-Universität Göttingen >
cege - Centrum für Europa-, Governance- und Entwicklungsforschung, Universität Göttingen >
cege-Diskussionspapiere, Universität Göttingen >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/32031
  

Full metadata record

DC FieldValueLanguage
dc.contributor.authorBlonski, Matthiasen_US
dc.contributor.authorvon Lilienfeld-Toal, Ulfen_US
dc.date.accessioned2008-12-17en_US
dc.date.accessioned2010-05-14T11:54:59Z-
dc.date.available2010-05-14T11:54:59Z-
dc.date.issued2008en_US
dc.identifier.urihttp://hdl.handle.net/10419/32031-
dc.description.abstractSuppose the value of a firm is endogenously determined by a manager's costly effort. We call this manager a distinguished player if he also can trade shares of the firm on a market. Arbitrage-free asset pricing theory suggests that the equilibrium market price reflects the value increasing contribution of a distinguished player. Trade at this price, however, cannot be an equilibrium of a market game since due to private effort costs, shares have a lower value to the distinguished player as compared to other investors. Why? The distinguished player himself can gain by selling at this price and in turn reduce effort. By merging asset pricing and corporate finance concepts we solve this distinguished player paradox and show how this asymmetry in valuations can systematically bring about a trade price strictly below the equilibrium value of the company. This implies that buyers enjoy excess returns on their investment and is thereby at odds with the efficient markets hypothesis. It further involves a substantial reinterpretation of traditional no-arbitrage towards a game-theoretic understanding. The empirical prediction that companies with a distinguished player yield excess-returns was confirmed for the sample of S&P500 firms and S&P1500 firms in a companion paper by von Lilienfeld-Toal and R¨unzi (2007). Our results are shown to be robust with respect to trading rules, discrete versus continuous effort, trading costs, noise traders, and price taking behavior.en_US
dc.language.isoengen_US
dc.publisherCenter for European, Governance and Economic Development Research Göttingenen_US
dc.relation.ispartofseriesCeGE Discussion Paper 78en_US
dc.subject.jelG12en_US
dc.subject.jelG32en_US
dc.subject.jelC72en_US
dc.subject.jelD43en_US
dc.subject.jelD46en_US
dc.subject.ddc330en_US
dc.subject.keywordexcess returnsen_US
dc.subject.keywordunderpricingen_US
dc.subject.keywordno-arbitrageen_US
dc.subject.keywordasset pricingen_US
dc.subject.keywordcorporate financeen_US
dc.titleExcess returns and the distinguished player paradoxen_US
dc.typeWorking Paperen_US
dc.identifier.ppn585597952en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
dc.identifier.repecRePEc:zbw:cegedp:78-
Appears in Collections:cege-Diskussionspapiere, Universität Göttingen

Files in This Item:
File Description SizeFormat
585597952.pdf522.25 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.